18 May 2016

Spring 2016 European Semester package: Commission issues country-specific recommendations

The Member States have advanced reforms over the last year, but the pace of such progress needs to be accelerated to contribute, as it should, to jobs, growth and investment. The implementation of country-specific recommendations varies across policy areas. This can be due to the complexity of the reforms to be undertaken, such as reforms of labour and product markets, pensions systems and banking sector. Most significant progress is observed with regard to recommendations in the areas of financial services and active labour market policies. In contrast, more progress could have been expected in generating a business and employment friendly and regulatory environment, increasing female labour market participation and reducing barriers in the services sector. More progress in implementation is identified for Member States experiencing imbalances than for Member States without imbalances, presumably due to the larger need for reform, stronger policy dialogue and, in some cases, in response to stronger market pressure.

In countries with high external liabilities, the large current account deficits of the pre-crisis period have been considerably reduced or even turned into surpluses. In some other Member States, surpluses persist and remain very large. Cost competitiveness has generally improved and there is evidence of structural adjustment in terms of resources shifting to the tradable sector. Unemployment is declining, albeit to different degrees across the Member States. The process of balance-sheet repairs is progressing, with deleveraging ongoing in the household and corporate sectors, and bank capitalisation improving. In most countries, deleveraging is mainly linked to reduced spending, while in some countries, the relative level of debt has gone down due to robust growth. In this context, vulnerabilities associated with persisting debt overhang in some sectors remain a source of concern, while the financial sector is affected by low profitability coupled with high levels of non-performing legacy loans and the need to adjust to a more demanding regulatory environment.

Concerning the Macroeconomic Imbalances Procedure (MIP), the Commission confirms that Croatia and Portugal are to be considered to be experiencing excessive imbalances. They should implement their reform agendas rigorously and in a timely manner. The level of ambition of the two countries' national reform programmes (NRPs) is broadly adequate and confirms their intention to correct their excessive imbalances.

The Commission remains committed to support reform efforts at Member States' level. The Structural Reform Support Service, established last year, is already helping with effective reform implementation, building on its experience in Cyprus and Greece. A legislative proposal to expand the service into an EU instrument for all Member States is currently under discussion with co-lawmakers to establish a Structural Reform Support Programme, which will allow the mobilisation of technical support for a broad range of key reform areas.

Fiscal developments and decisions

Overall, the aggregate deficit level in the euro area is set to fall to 1.9% this year, down from a peak of 6.1% in 2010.

The Commission has also taken a number of steps under the Stability and Growth Pact.First, in the light of latest data, the European Commission recommends to the Council to close the Excessive Deficit Procedure (EDP) for Cyprus, Ireland and Sloveniaas these countries have brought their deficits below the 3% of GDP Treaty reference value in 2015 and the correction is expected to be durable. That means their deficits are forecast to remain below 3% of GDP in 2016 and 2017. For Cyprus, this would mean an exit one year ahead of the 2016 deadline. If the Council so decides, this would reduce the total number of Member States in EDP to six (Croatia, France, Greece, Portugal, Spain and UK), down from 24 Member States in EDP in spring 2011.

Second, the Commission adopted reports for Belgium, Italy and Finland under Article 126(3) TFEU, in which it reviews their compliance with the debt criterion of the Treaty. While these countries appear to be at variance with the debt reference value, and the benchmark pace of reduction towards it, the reports, after analysing the relevant factors, suggest that the Stability and Growth Pact should be considered as currently complied with. For Italy, the Commission will review its assessment of the relevant factors in a new report by November as further information on the resumption of the adjustment path towards the medium-term budgetary objective for 2017 becomes available.

As regards Portugal and Spain, the Commission recommends to the Council to recommend a durable correction of the excessive deficit in 2016 and 2017 respectively, by taking the necessary structural measures and by using all windfall gains for deficit and debt reduction. In line with its duty to monitor the implementation of the excessive deficit procedure under Article 126 of the Treaty, the Commission will come back to the situation of these two Member States in early July.

Finally, the Commission has launched a formal consultation to the Member States that are contracting parties of the Fiscal Compact to enquire about their progress in implementing in national law the provisions of the Fiscal Compact. The Member States concerned have two months to submit their observations to the Commission. [...]

Country-specific recommendations 2016

Full press release

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